Category Archives: Homebuying Trends

Before Selling Your Home, Check Your Zestimate

Estimates of your home’s value that you might find online are, as widely acknowledged, nigh on bogus. They’re created by computers, which, smart as they’ve gotten, lack for feet or eyeballs with which to visit a house. The result that’s available on websites such as Zillow has been described as everything from “hallucinatory information” (by Realtor Jonathan Dalton, in Phoenix, Arizona) to “gives the wrong impression,” (by Realtor Gary Russell, in Waco, Texas).

The problem for home sellers is that, if your house appears in the Zillow system, any potential buyer might look at its so-called “Zestimate” and possibly believe it. Dalton’s impression is that, “buyers look at Zestimates . . . in a borderline irrational manner if only to support their own desire to get a ‘deal’ on a house.”

As a seller, you want to know what dollar figure the buyers are looking at: Will they coming to your house thinking it’s a bargain (or that maybe you’ve priced it low because of hidden problems), or over-priced? In either case, it’s worth taking steps to change the Zestimate — which you can, within limits.

On the Zillow listing page for your home, click the link for “Claim this home.” Then, you will be able amend any of the basic information offered, such as number of bedrooms and baths, type of flooring, included appliances, and so on. This still can’t possibly account for factors like a great location, a tree-lined street, a great layout, or a stunning remodel, but it’s a start.

I just “claimed” my current house, as an experiment. I had expected to be able to report that I raised my Zestimate by alerting the computer to home features that it couldn’t have known I had. But no, I lowered it. A lot. Actually, that’s not too surprising, given that Zillow thought my house had one more bedroom than it really does. (Need I say more about accuracy?)

Zillow also gives you a place to add your own estimate of the home’s value. Interesting idea, getting into an online argument with a computer. I’d be inclined to take a hands-off approach, and leave that portion blank — but that’s a conversation to have with your real estate agent.

Should You Worry About Fraud When Buying a Home?

Various forms of real estate fraud are on the rise, the news tells us. The biggest one making headlines is “collusion,” which we’re told affected fewer than 5% of real estate transactions before 2009, but doubled by 2010, and then fell only a little, to 6.8%, in 2011. (See “Housing prices: Agents make houses sell for a lot less. On purpose,” by Schuyler Velasco of the Christian Science Monitor.)

Also called “flopping,” this  form of fraud is not likely to affect you as a homebuyer — it simply means that home sellers convince the bank to let them sell the house “short” (for less than what’s owed on the mortgage), sometimes by tearing up the lawn, painting false cracks, and otherwise making it look bad; then they sell it to a friend or family member; then happily roll in profits when that person makes big bucks reselling the place a day or two later. The bank/lender is the primary victim of this crime.

Then there are the various schemes and scams that prey on homeowners having difficulty paying their mortgages; see, for example, the video “ConsumerWatch: Real Estate Fraud On The Rise In Bay Area.”

But when it comes to simply buying a home, the type of fraud you should probably worry about the most concerns the seller’s representations about the house’s condition. In most U.S. states, sellers are required to fill out a disclosure statement, itemizing the house’s features and pointing out any known defects. (Even in those states that don’t legally require it, savvy buyers can negotiate to receive such a summary.) Unfortunately, the disclosure forms don’t require the seller to actually investigate the property, and they often contain opportunities to fudge an answer (such as the option to check a box saying “unknown”), leading some sellers to turn a blind eye to problems.

That’s why any home buyer with an ounce of sense will also make the sale contingent upon the right to hire one or more home inspectors, and to be satisfied with the results of the inspectors’ reports. A trained home inspector will examine the house from roof to basement, test the various working systems, and point out defects concerning everything from wiring to leakage to foundation issues.

Those two protective mechanisms, the disclosure report and home inspection, are usually enough to uncover the biggest problems with a house.

And yet . . . some home sellers manage to perpetrate more serious forms of fraud, even under the nose of the home inspector. Attorney Ken Goldstein of Massachusetts, for example, says: ““One of the most blatant cases I’ve seen was where, a few weeks after the sale, the new owners heard a crash from the basement. The ceiling—one of those drop structures with a metal framework and tiles fitting in the grid—had just collapsed. The tiles were all soaking wet. Suspiciously, an old kitchen pot was sitting within the wreckage. It turns out there was a leaking pipe up there, and the sneaky seller had apparently removed a tile and put in the pot. That worked to hide the problem through the closing date—but then the pot overfilled.”

Oops. When something like that happens, it’s time to read Nolo’s article on “Home Defects: Sue the Seller?“.

Got Room in Your Home for Grandma?

When new-home builders start offering models with an independent living space for elder (or younger) family members, you know there’s a trend afoot. (See “Latest home designs: Our house is Grandma’s house, too,” by Jim Buchta of the Star Tribune of Minneapolis.) Minnesota’s Lennar Corp. says it’s the first production builder to offer a design featuring a “house-within-a-house,” each with a its own entrance and garage.

Buchta also provides figures from the Pew Research Center, indicating that while only 12% of the U.S. lived in multigenerational households in 1980, that has since gone up to 17% of U.S. households. Yup, a trend!

What does that mean for home buyers and sellers who won’t be signing up to live in a Lennar Corp. development? For buyers, expect competition for houses with layouts that can accommodate a relatively independent family member, and that don’t present major barriers to accessibility — or can be so adapted. (For more information, see Nolo’s article on “Home Modifications for the Elderly.”)

For sellers, it means a marketing opportunity. If your home already features grandma-friendly features, or could easily be adapted to do so, be sure to mention this in your marketing materials. Just be careful about over-promising, in case local zoning or building laws limit the possibilities for remodeling or expanding your house.

Also realize that your most likely buyers may be originally from another country, where many generations share one house is more common. That may give you ideas or cautions for marketing, such as advertising your house in the local ethnic media.

 

Millionaires Stay Put in Their Homes: Should You?

“Take a cue from the rich,” advises the July, 2012 issue of Money magazine, and “practice patience” when it comes to homeownership. According to Money, millionaires tend to live in their homes for over 20 years. (They also tend to hold their stocks for long periods of time, not to mention their spouses; 96% don’t divorce or separate.)

How does that 20+ years in a home compare with the average length of time spent by the rest of the U.S. populace? Hard to say. (Money doesn’t even try.) According to an analysis of  2007 U.S. Census figures by Paul Emrath, Ph.D., of HousingEconomics.com (published here on the NAHB website), there’s a mix of homeowner types: The people who tend to move every few years and the ones who stay put for a while. Averaging these out doesn’t really provide an accurate picture of anyone at all — though one can say that the biggest group of homeowners stays in their home for up to 19 years, which is less than reported for the aforementioned millionaires.

So, assuming it is true that millionaires stay in their homes for an appreciably longer time than the 99% does, the question becomes: Is this actually helping them achieve millionaire status? Or is something else at work in creating this statistic?

The first thought that came to my mind was that perhaps a millionaire’s “starter home” is so much bigger and better than what you or I could afford that there’s simply no incentive to move. They can sit back in their poolside cabana and relax for a few decades. But no, Money supplies a surprising statistic here: Three times more millionaires live in homes worth less than $300,000 than in homes worth at least $1 million. (I guess you don’t become or remain a millionaire by spending all your money.)

Money also points out that by staying in one place, “You don’t lose money to transaction costs and you ride out market slumps . . . .”

I still question whether there’s a lesson in there for the rest of us, however. For instance, a lot of millionaires aren’t relying on day jobs for income, but on their investments; in which case, they have no need to, say, move to a new city in order to take advantage of a lucrative job offer. Worries about transaction costs and missing the boat to millionaire-dom certainly shouldn’t stop someone who DOES need to advance in their career from moving. And if I’m right that many millionaires don’t have to worry about commuting, maybe the houses they’re buying are sometimes cheaper because they’re located in remote rural locations.

Just in case, however, I’m planning to stay in my house for a good long time and wait for the millions to roll in.

Staging Includes New Furniture AND New People?!

Whilst indulging in my favorite real estate fantasy reading — back issues of Country Life magazine, from England — I came across an article on home staging. (It was specially adapted for those selling multi-building country estates, of course.) The article credits the U.S. with having begun and “matured” the idea of dressing up one’s home for sale, which I thought was awfully sporting for a country that thinks we all live in McDonald’s parking lots.

The article goes on to say that U.S. stagers “now offer to move people as well as furniture into empty homes to give them the life they need to find a buyer.” Really? I have never, ever been through a staged home that actually had people in it. Would they be fashionably attired and draped across the sofa holding a cocktail, perhaps?

Determined to show the writer up for her anti-American snickering, I turned to Google — and whaddya know, us Americans live up to our stereotype. The Great Zillow has spoken, with an article entitled “New Staging Concept: Live-In Stagers.”

From what this article describes, however, the purpose of the live-in stagers isn’t so much to make their presence felt during showings, but to act as security and maintenance detail during the off hours. An excellent idea, in cases where the sellers have already moved and the home would otherwise be vacant. Back when I was selling my first home, I’d stop by every morning to turn on the fountain, and would almost always find something needing attention — an orange in the stager’s fruit bowl that had gone fuzzy-green with mold, a branch blown into the middle of the yard by the wind, flyers on the front doorstep, and so on.

Then again, live-human staging must have its disadvantages. They’ve got to put their toothbrushes somewhere, and keep the towels looking perfectly plush and fresh every day. Plus, I can imagine some odd interactions as visiting buyers, assuming they’re the owners, ask questions about the house, only to be told, “Don’t mind me, I’m part of the furniture.”

Home Staging Still Raging

Plenty of ink has been spilled over the topic of how home staging can help you sell a house. Yet every new seller no doubt goes through a similar process of doubting whether it’s worth the several-thousand-dollars price tag: “Sure, everyone else’s house could benefit by staging, but mine looks fine as it is, right?”

If you’re a seller going through that mental process right now, a good article to read is Andrea Pflaumer’s “Setting the Stage” in the latest edition of the East Bay Monthly. Pflaumer starts with a bang, citing a Berkeley, CA real estate agent who believes that her sale of a house for $250,000 over the asking price could be credited, in large part, to good staging.

The article goes on to point out things that sellers are often blind to — worn carpets and tile grout, overgrown plants, and dated light fixtures. At a more subtle level, “If the owners’ imprint is too obvious, would-be buyers feel as though they’re invading someone’s privacy rather than envisioning the home as their own.”

Check it out. And homebuyers, you might want to read this too, for a reminder of how to look at the bones of the house without being bedazzled by the staging.

Home Buyers: Don’t Expect Access to Every Home That’s for Sale

Unless you’re a millionaire, that is. Readers of Nolo’s homebuying books probably know that we recommend going to open houses for a wide range of properties in your area of interest, above and below your price range, as a way of getting to know that market and what justifies a higher or lower price tag.

However, there are some homes, at the uber-high end of the scale, that you can forget about visiting. Luxury home sellers are (understandably) wary about throwing their doors open to the curious public, and may not even hold an open house at all. Viewing the house will be arranged “By appointment only.”

Even then, if you were gutsy enough to make an appointment to see a house you couldn’t possibly buy, you might find another hurdle: a check on y0ur financial credentials. That’s apparently the case, for instance, with a $13.9 million home being marketed in Las Vegas right now. (With a 17-car garage?!) Los Angeles Times reporter John Glanna explains,”such top-end sellers [] take precautions, such as conducting financial background checks on any buyer before rolling out the red carpet for a personal home tour.”

Oh well. If it’s any comfort regarding your market research, these high-end homes operate in a different pricing universe anyway. Oddly enough, in a down market, they sometimes drop in price more precipitously than other houses, owing to the fact that even wealthy buyers are feeling uncertain and looking for bargains, and their investments may have recently dropped in value to the tune of what they’d pay to buy, say, a house.

 

 

In a Strengthening Market, Appraisals May Not Keep Up With Prices

I live in one of those pockets of the U.S. where home prices never dropped as dramatically as elsewhere and in some instances, appear now to be rising. Other such pockets exist across the U.S. — just look at your local (not national) headlines to see whether you’re in one of them. But even if you’re not, keep reading to see what growing pains your own market might soon endure.

We’re only at the tentative beginnings of this mini-trend. And that very transition is leading to complications at appraisal time. The situation was summed up recently by Realtor Julie Scheff as, “multiple offers [] driving prices upward and conservative appraisals [] dampening them downward (in an April 20 article in the Montclarion called “Multiple offers signal a strengthening realty market”).

By way of reminder, most home buyers take out a loan in order to buy a home, thus making the bank or other lender a key player in closing the sale. What the bank says, basically goes. And the bank will nearly always require an appraisal, in order to make sure that the house is worth the amount of the loan in case it ends up foreclosing.

Appraisers, meanwhile, have become a conservative lot. They got burned in the real estate meltdown, collectively accused of having willingly gone along with insane levels of home price inflation. So they take a much closer look at properties now before proclaiming their value, and if they don’t see comparable sales supporting the amount the buyer wants to pay, they may not sign off on the magic number.

The last thing you want in a market that still isn’t exactly superheated is to have the deal fall apart because the appraiser, having looked around at all the low comparables, says that property isn’t worth what the buyer and seller have agreed upon. Fortunately, there’s no reason to just sit back and wait for that to happen.

Avoiding a low appraisal in advance. It’s possible to forestall a low appraisal by helping the appraiser recognize the property’s value. Whether you are the seller or the buyer, you can commission your own, independent appraisal of the property, and give those to the lender’s appraiser ahead of time.

You (or your real estate agent) can also research and advise the appraiser of any local short sales or foreclosures that might artificially bring down the numbers. (Contrary to rumor, you are allowed to speak with the appraiser, though the lender may not do so.) Give the appraiser a list (with before-and-after photos, if possible) of interior features, upgrades, and improvements, all of which can boost the property’s value. And by the way, sellers, keeping the property looking good through appraisal day doesn’t hurt, either.

Your real estate agent’s industry connections can help here, too. Your agent can speak to other agents with homes in escrow and ask for the sales prices, then — assuming they reflect rising values — prepare a list of these homes with their agents’ contact information for the appraiser.

Dealing with a low appraisal. If providing advance information doesn’t work, and the appraisal still comes in low, the seller and the buyer can call up the appraiser and question the bases for the appraisal, hoping for a reevaluation. You can also commission a second appraisal, and (assuming it’s better) show that to the lender — though the lender has no obligation to accept it.

If you’re the seller, your main hope may end up being that the buyer is willing to pay the original price (particularly likely if you were in a multiple bid situation) but increase the down payment and take out a smaller loan. That just heightens the importance of sellers carefully scrutinizing the buyer’s financials before accepting an offer, and asking for detailed information on the buyer’s income and savings. Yes, it may feel like the seller is delving for private information, but the buyer has good reason to consent to share it in this situation. (It’s also another good reason for sellers to prefer a buyer who offers a large down payment to begin with.)

Barring this, a price drop (or failed deal) may be your only option. But buyers, don’t be overly alarmed if an appraisal comes in low, particularly if you did your research or were in a competitive bidding situation. While the appraiser is a professional, and the process is backed up by evidence, every house is unique. A house’s value comes down to what a buyer is willing to pay and a seller is willing to accept.

Buy Small, Save Big

Remember the days of stretching to buy as much house as you could possibly afford? Once upon a time, it made sense, given that you’d be sitting an a rapidly appreciating asset. But now that real estate appreciation is looking like a thing of the bubbly past, it may be time to shift focus to the advantages of buying less house than you can afford.

That’s exactly what Money magazine did in its April, 2012 issue, under the article, “Buy Less House Than You Can Afford.” (Note: The online version is much shorter than the print one.)  Money compared the long-term financial implications of two different home purchase possibilities:

  • a 2,000 square-foot house, with a purchase price of $239,000, and
  • a 3,000 square-foot house, with a purchase prices of $389,000.

They assumed a 20% down payment, a 30-year fixed-rate loan at 4% interest, and other costs, such as insurance, taxes, maintenance, increasing at 3% per year.

Meanwhile, they calculated how much you would earn if you took the money saved on the sale and upkeep of the house and invested it at 6% per year. (That rate of return may be a little optimistic, but hey, we’re talking about a 30-year window.)

The drum roll please: By buying the smaller house, Money found that you would, after 30 years, have socked away an extra $1,016,800. Of course, that assumes that you actually save the money. Spending it bit by bit will destroy the advantages of earning interest or dividends, not to mention ofcompounding those earnings.

Holding an Easter Open House? Have an Egg Hunt!

Trying to draw visitors to a holiday weekend open house can be a challenge. But the owners of at least one home in Montclair, California (at 6100 Valley View R0ad) decided to turn this challenge to their advantage by announcing an Easter Egg Hunt during the Sunday open house. What better way for parents to get in a little house-hunting while keeping the kids entertained?

Not to mention that including an egg hunt offers visitors a great opportunity to not just look at the house passively, but interact with it, and imagine more fun family activities ahead — once they’ve bought the place and moved in, of course. (Just make sure to have enough eggs on hand, if you don’t want parents noticing instead how their child’s tantrums echo through the grand entry hall.)

In keeping with the holiday spirit, Realtor.com also offered a view of “Five Homes Perfect for an Easter Egg Hunt.” Actually, with all the color splashed around these homes, Easter might be the best time of year for them to sell!